Paris-based International Energy Agency IEA warned in its latest monthly Oil Market Report Tuesday that the fall in crude oil prices ignores Chinese demand and imminent supply crunch. However, it has to be said that the Chinese reboot after Covid Zero has not gone as IEA and OPEC had hoped. The IEA forecasts global oil demand to rise by 2.2 mil bpd in 2023 to a record 102 mil bpd noting that current market pessimism stands in stark contrast to tighter market balances in 2H 2023. They expect demand to exceed supply by almost 2 mil bpd.
IEA Oil Report Highlights
- Current market pessimism stands in stark contrast to tighter market balances in 2H 2023
- China will account for nearly 60% of global oil demand growth this year
- Global oil demand set to rise by 2.2 mil bpd in 2023 to a record 102 mil bpd
- That is when we expect demand to exceed supply by almost 2 mil bpd
- China’s demand recovery has surpassed expectations, reaching a record 16 mil bpd in March
OPEC+ announced on April 2 a surprise cut of over 1 million barrel per day crude oil production cut on Sunday ahead of the scheduled JMMC Monday. This is in addition to the already announced 500kppd previously announced by Russia.
IEA Warns on Pessimism
“Record demand in China, India and the Middle East at the start of the year more than offset lacklustre industrial activity and oil use in the OECD,” the IEA said.
Persisting concerns over “muted industrial activity and higher interest rates … combined have led to recessionary scenarios gaining traction and worries of a downward shift in the oil demand growth,” the IEA said in its latest monthly Oil Market Report. The agency highlighted that the recent price declines reflect a growing rift between investor sentiment and a tightening supply-demand picture.
“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d,” the agency said, revising its global oil demand forecast by 200,000 barrels per day from its previous projection, to reach 102 million barrels per day in 2023.
OPEC Meeting Ahead
The IEA’s warning comes roughly three weeks ahead of OPEC and OPEC+ meetings to review the producer alliance’s output strategy. Iraqi Oil Minister Hayan Abdel-Ghani said last week in comments reported by Reuters. “At the next meeting, which will be held on the 3rd and 4th (of June), there will be no additional reduction, and as for Iraq, we cannot reduce further,”
The OPEC Monthly Oil Market Report (MOMR) for May 2023 says, “looking ahead, oil demand for most products in China has been increasing,” assessing Chinese domestic mobility and air travel have now recovered close to 80% of pre-pandemic levels, with oil demand set to experience 1 million barrels per day of year-on-year growth in the second quarter.
From The TradersCommunity US Research Desk